I welcome to the table officers of the Australian Securities and Investments Commission. Mr Lucy, do you have an opening statement?
Mr Lucy—I do not.
CHAIR—Thank you. We will proceed to questioning.
Senator SHERRY—I want to congratulate you, Mr Lucy. I believe you have been appointed the inaugural chairman of International Forum of Independent Audit Regulators.
Mr Lucy—That is correct. Thank you for your observation.
Senator SHERRY—That is a very impressive title.
CHAIR—On behalf of other senators, we wish to join in those expressions of good wishes to you, Mr Lucy.
Mr Lucy—Thank you.
Senator BERNARDI—Mr D’Aloisio is not here today?
Mr Lucy—No, he is not. He has not taken office yet.
Senator SHERRY—Okay. When will that occur?
Mr Lucy—That commences on 22 November.
Senator SHERRY—If you could pass on our congratulations.
Mr Lucy—Thank you.
Senator WONG—Good morning. The indications over recent months are that there is a strong possibility of private equity starting to occupy a rather different position in the market, potentially in relation to some fairly large Australian companies. I am not particularly interested in talking about the detail of proposed takeovers that may or may not be on foot. I am interested in whether ASIC has turned its mind to any governance and accountability implications which might flow from private equity taking a different position in the marketplace?
Mr Lucy—That is an astute observation. Certainly we support the fact that there has been a lot of activity from the private equity market—in particular the international equity market. It is a complex issue. In the first instance, one needs to reflect on why they might be looking to Australia in particular, and I think there are a number of factors to that. Firstly, there is the success of many Australian companies in the international marketplace. To the extent that Australia is regarded as a destination that is politically stable, there is strong financial growth and it is well-regulated—and that is regarded internationally as being the case. So I think there are good ingredients for people to seek to invest into Australia.
There are a number of observations that I think are potentially superficial as to whether or not, for example, some of these people are looking to avoid some of the requirements that might otherwise be applied to listed public companies. I think that is a superficial observation. I think more so it is to do with some of the parties looking for opportunities where perhaps they are less accountable. For example, in the remuneration area, they do not have the same level of accountability regarding levels of remuneration than they would if they were a listed public company. So it is a broader area. It is a complex area. Yes, we have turned our minds to this and we are in the process of further developing some thoughts on this.
Senator WONG—As you correctly pointed out, you picked disclosure around remuneration as one example—
Mr Lucy—But one example.
Senator WONG—Yes, there are a range of other accountability mechanisms—to use a generic term—which are predicated in terms of their application on the assumption that these sorts of companies where there is a public interest in requiring a certain level of disclosure and accountability in relation to governance et cetera are going to be publicly listed companies. How might you deal with private equity firms, for example, taking over companies which were previously large Australian publicly listed companies?
Mr Lucy—I think the first instance—which has already been in the press—is that we are looking at the level of disclosure that needs to be made by the companies that are in receipt of such offers. Again, that is a very complex issue because some of these offers are accompanied by very significant conditions. Therefore, they are not automatically offers that need to be communicated to the market. You also have the motives of the offer as to whether or not they are looking for material to be in the marketplace or not. Conversely, you have the motives of the company, the receipt of such an offer, as to whether or not they want to disclose it and adjust the share price. Right throughout it is very complex. We are looking at it closely. At this stage all parties have a responsibility to comply with the Corporations Law and we will make sure that they do so.
Senator WONG—It is not an anti-private equity position. Clearly, private equity interest can regenerate companies and can increase the efficiency of the market.
Mr Lucy—Quite so.
Senator WONG—But, as you point out, it might be suggested by some that the current regulatory framework does not encompass private equity in the way that might be warranted to some extent if they occupied a different position in the market.
Mr Lucy—The regulatory environment is a matter for the government and ultimately the parliament.
Senator WONG—Yes.
Mr Lucy—Certainly from our perspective, having regard to the laws which we administer, we are watching it closely. We are trying to understand, firstly, the motives, but secondly, the issues that may come out of some of these activities, and we are doing that diligently.
Senator WONG—From a publicly listed director’s perspective, is there perhaps a little inequity in terms of the relative accountability requirements which apply to them but which do not apply to directors of private equity companies.
Mr Lucy—I think this needs to be looked at in the context of an international financial market. These activities are undertaken on the basis of where in the world one might identify opportunities. In this case, Australia is being seen as such a destination. Australian companies have substantial investments and undertakings throughout the rest of the world. So people come to Australia. They need to comply with our laws of course, and to the extent that there is arbitrage between laws in Australia and the United States, the UK or whatever, that is just a fact of international markets.
Senator WONG—I was not so much referring to that as to how the publicly listed director might perceive the relative requirements which apply to somebody who is a competitor, but because of the different mechanism or corporate vehicle they are utilising obviously does not have the same sort of requirements.
Mr Lucy—For our part we would certainly not be canvassing with the government any diminution or reduction of the responsibilities of the directors as they exist at the moment. We are comfortable with the laws. Going forward, as to whether the government wishes to look at any other changes for these parties, that is a smatter for the government.
Senator WONG—Just to clarify, you have indicated that you are looking at this issue.
Mr Lucy—Yes, we are.
Senator WONG—I presume you have not been asked by government for advice on this as yet?
Mr Lucy—Not as yet.
Senator WONG—What is the process whereby you will look at it? Is there some internal consideration? Are you looking to perhaps prepare some sort of discussion paper?
Mr Lucy—Potentially. I am not in a position to indicate what sort of a paper we are going to come up with because at this stage we are not quite sure of the issues that might be contained within such a paper. If in the end we form a view that we should be communicating with the government then we certainly will.
Senator WONG—I am sure we will have a further discussion about this over the coming months. I think you described as superficial analysis a suggestion that any move to private equity is driven by a perception or reality around the regulatory